Sonos Works to Grow Malaysia Operation Despite Supply-Chain Issues
May 28 2021 - 10:33AM
Dow Jones News
By Mark Maurer
Speaker maker Sonos Inc. is working with suppliers to boost
production capacity in Malaysia to lower its tariff costs, but the
company's efforts have been hampered by coronavirus restrictions
and a shortage of semiconductors.
Santa Barbara, Calif.-based Sonos, which sells voice-activated,
internet-connected speakers and other audio electronics, plans to
source all of its U.S.-bound products from Malaysia by the fall,
Chief Financial Officer Brittany Bagley said. The U.S. is the
company's core market, generating more than half of its
revenue.
"It has taken longer than we thought it would, but we're still
very much on track with our Malaysia strategy," said Ms. Bagley,
who became the company's CFO in 2019.
That year, Sonos began relocating orders with Chinese suppliers
to Malaysia in an effort to diversify its supply chain. Its tariff
costs have since come down, but the company wants to reduce them
further, as tariffs remain in place between the U.S. and China.
Sonos declined to provide a percentage for its U.S.-bound products
currently made in China.
The company said it would continue to source products for sale
in Europe, the Middle East, Africa and the Asia-Pacific region from
China, which made up about 42% of revenue during the quarter ended
April 3. Sonos doesn't own or operate any plants.
Its plans to increase orders from Malaysia have been met with
obstacles. Manufacturing plants in the country had to shut down
temporarily because of pandemic-related restrictions and Sonos
faced challenges in hiring workers. The company declined to say how
many suppliers it has or how much it will cost to boost orders from
manufacturing partners in Malaysia.
Adding to the challenge are strong demand for its products and a
global shortage of semiconductors, which make it difficult for the
company and many others to maintain inventory levels.
Semiconductors are used in speech-recognition software for wireless
speakers and other electronics. Sones declined to comment on where
it sources semiconductors from.
The company earlier this month said revenue rose 90.2% to $332.9
million during the quarter ended April 3 compared with the
prior-year period. Net income totaled $17.2 million, up from a net
loss of $52.3 million a year before.
Lower tariff expenses, which are included in the cost of
revenue, helped Sonos offset higher costs caused by rising expenses
for shipping, logistics and semiconductors. Sonos's cost of revenue
grew 63.8% to $167.2 million in the latest quarter, the company
said.
The company also recorded $1.7 million in refunds from the U.S.
for tariffs paid in prior periods because of a temporary exemption
granted by the government last year. It expects to receive $27.5
million in refunds related to the exemption at an indefinite point
in time.
"What we pay in tariffs has come down materially," Ms. Bagley
said, referring to the shift to Malaysia and a reduced tariff rate
for imports from China last year. The tariff rate fell to 7.5% in
February 2020 from 15% previously as part of a trade agreement
between the U.S. and China. Ms. Bagley declined to provide figures
on how much Sonos pays in tariffs.
The Biden administration has pursued a tough approach toward
China, sustaining the trade tariffs and other hard-line policies
set by the Trump administration. Ms. Bagley said she is closely
watching if the administration makes changes to U.S. trade policies
to decide how to handle potentially higher tariffs.
The company should expand its supplier network to ensure it has
adequate inventory, said Brent Thill, a senior analyst covering
technology companies at Jefferies Group LLC, a financial-services
firm.
"The only way they can combat this is to get better control of
the supply chain," he said.
Write to Mark Maurer at mark.maurer@wsj.com
(END) Dow Jones Newswires
May 28, 2021 11:19 ET (15:19 GMT)
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